{"id":214365,"date":"2024-11-07T09:52:17","date_gmt":"2024-11-07T09:52:17","guid":{"rendered":"https:\/\/www.quoniam.com\/article\/comeback-small-caps-copy\/"},"modified":"2024-11-11T09:37:06","modified_gmt":"2024-11-11T09:37:06","slug":"reactions-to-the-red-sweep","status":"publish","type":"post","link":"https:\/\/www.quoniam.com\/en\/article\/reactions-to-the-red-sweep\/","title":{"rendered":"Equity commentary: Reactions to the \u201cred sweep\u201d \u2013 sectors and styles in focus"},"content":{"rendered":"\n
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Investors have been eagerly awaiting the outcome of this year’s US elections, with equity markets increasingly pricing in a potential Republican victory in recent days.<\/p>\n\n\n\n

US equity markets have reached all-time highs, up around 23% in the run-up to the election. The day after the election, markets reacted with euphoria. The Russell 2000 stood out with a gain of +5.84%, followed by the Dow with +3.57%, which was its biggest move in two years. The Nasdaq was up +2.95% and the S&P 500 +2.53%, all three hitting all-time intraday highs. <\/p>\n\n\n\n

Meanwhile, movements in various asset classes – such as interest rates, bitcoin, currency markets and gold – appear to be more directly anticipating a Trump victory or “red sweep”. <\/p>\n\n\n\n

Equity markets are showing signs of increased risk appetite. Reflecting this sentiment, the VIX has hovered below 20 in recent days, while the S&P 500 Total Market Volume Index had been flat leading up to the election, but volumes jumped significantly the day after, reflecting market euphoria and heightened optimism surrounding the election results.<\/p>\n\n\n\n

Sector: What is shifting?<\/strong><\/h5>\n\n\n\n

Some sectors positioned to benefit from a pro-growth agenda including tax cuts as well as protectionist measures (e.g. automobiles 23.6%, notably Tesla +15%) and deregulation (financials 4.4% and energy 3.5%) have performed strongly in recent weeks. By contrast, sectors with significant exposure to global trade, regulatory changes and tariffs, such as chemicals (-4.3%), have largely underperformed. The technology sector (1.8%), which is particularly exposed to potential H1-B visas and regulatory changes, has been stagnant. Since mid-October, markets have already priced in the potential risks of a partial rollback of the IRA or cuts to Medicaid, as evidenced by the underperformance of some utilities (-4.3%) and healthcare (-3.3%) stocks. Clean energy stocks, which have been hit by earnings concerns and potential IRA revisions, face additional headwinds from changes in leasing, permitting and tariffs (Industry\/sector performance from 15\/10\/2024 to 6\/11\/2024).<\/p>\n<\/div><\/div>\n\n\n\n

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Investment styles: America first may support small and mid caps<\/h5>\n\n\n\n

Style indices also reacted to the election. Small caps were a relatively popular call option on a Trump victory. Small\/mid-caps were seen as beneficiaries of the “America First” policy during the first Trump presidency. Given the focus on tariffs, this was the case again, as small companies with mainly domestic revenue sources clearly outperformed large caps.<\/p>\n\n\n\n

In recent days, value stocks have outperformed expensive quality and momentum stocks, but have remained flat relative to the broader market. While this scenario is consistent with Trump’s previous presidency, at least from 2016 to the first half of 2018, the current macro environment is very different from eight years ago. Back then, the economic cycle was far from over, the labour market was less tight and inflation was not a major concern for the Fed. Today, the long-term impact of Trump’s proposed policies will lead to a higher US deficit and likely higher interest rates and inflation. Multi-factor strategies can benefit from increased exposure to value and small\/mid caps, which could enjoy a tailwind relative to large caps from higher inflation and potential tax cuts.<\/p>\n\n\n\n

Market participants anticipate that Trump will take a more protectionist approach on the economy. In the near future, investors are closely monitoring European and Asian exporters, e.g. autos, as well as companies with high direct revenue exposure to China for any market repricing driven by expected policy shifts, as a red sweep remains a significant possibility. Any escalation, such as an increase in existing tariffs on China or the imposition of broader tariffs on other trading partners, would have a substantial impact on both growth and inflation outlooks.<\/p>\n<\/div><\/div>\n\n\n\n

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Investors have been eagerly awaiting the outcome of this year’s US elections, with equity markets increasingly pricing in a potential Republican victory in recent days. US equity markets have reached all-time highs, up around 23% in the run-up to the election. The day after the election, markets reacted with euphoria. The Russell 2000 stood out […]<\/p>\n","protected":false},"author":15,"featured_media":214400,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_seopress_robots_primary_cat":"none","_seopress_titles_title":"Market commentary: Reactions to the \u201cred sweep\u201d \u2013 sections and styles in focus","_seopress_titles_desc":"Following the announcement of the president-elect, equity markets have responded with a historic rally\u2014the largest single-day post-election move on record, signaling investor optimism and recalibrated expectations for the future. ","_seopress_robots_index":"","footnotes":""},"categories":[44],"tags":[91,41],"class_list":["post-214365","post","type-post","status-publish","format-standard","has-post-thumbnail","category-article","tag-capital-markets","tag-equities"],"acf":[],"_links":{"self":[{"href":"https:\/\/www.quoniam.com\/en\/wp-json\/wp\/v2\/posts\/214365","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.quoniam.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.quoniam.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.quoniam.com\/en\/wp-json\/wp\/v2\/users\/15"}],"replies":[{"embeddable":true,"href":"https:\/\/www.quoniam.com\/en\/wp-json\/wp\/v2\/comments?post=214365"}],"version-history":[{"count":32,"href":"https:\/\/www.quoniam.com\/en\/wp-json\/wp\/v2\/posts\/214365\/revisions"}],"predecessor-version":[{"id":215502,"href":"https:\/\/www.quoniam.com\/en\/wp-json\/wp\/v2\/posts\/214365\/revisions\/215502"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.quoniam.com\/en\/wp-json\/wp\/v2\/media\/214400"}],"wp:attachment":[{"href":"https:\/\/www.quoniam.com\/en\/wp-json\/wp\/v2\/media?parent=214365"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.quoniam.com\/en\/wp-json\/wp\/v2\/categories?post=214365"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.quoniam.com\/en\/wp-json\/wp\/v2\/tags?post=214365"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}